What does the Trump Presidency Mean for HealthCare, Medicare and Estate Planning?
Whether you voted for him or not, we can all agree that the Trump presidency will most likely bring unprecedented change to our country.
Many have concerns about entitlements, healthcare, taxes and civil rights. My clients – Baby Boomers and young families who want to retire comfortably, have affordable healthcare as they age and who want to leave a legacy behind for their children and grandchildren – have concerns about what the Trump presidency means to the Affordable Healthcare Act (Obamacare), Medicare and Estate taxes.
I address those three issues in this blog.
Trump on Affordable Healthcare
One of the most heated debates during the election was whether Obamacare would be repealed by our new president. Trump vowed to repeal the Affordable Healthcare Act on day one of his presidency. However, just last week, Trump nominated Representative Tom Price to head the U.S. Department of Health and Human Services (HHS) who said, according to an article in Reuters, (“Trump’s health pick defends stocks, says Americans won’t lose insurance”),“Americans will not suddenly lose health insurance.” Price went on to say, “nobody is interested in pulling the rug out from anyone”. Instead, Republicans in Congress will work to repeal the law and replace it with an alternative system. (Source: Reuters)
In an interview with the Washington Post, Trump stated, “We’re going to have insurance for everybody. “[They] can expect to have great health care. It will be in a much-simplified form. Much less expensive and much better.”
The Bottom Line on Affordable HealthCare: While “Obamacare” may be repealed, it seems that neither Trump nor House Republicans want to leave Americans without universal healthcare. I suspect there will be changes to your existing plan, and, according to Trump and his advisers, these changes will make healthcare more available and affordable for all.
Trump on Medicare
Per an article in Forbes, repealing Obamacare will have a major impact on Medicare and Medicaid: the “unheralded Medicare reforms in Obamacare, such as lower operating costs, higher quality care and a sounder financial footing for the program” will be torn apart by the proposed Trump and Republican plans to dismantle Obamacare. Forbes also states that, “it would repeal the expansion of Medicaid, a program that provided more than 12 million low-income Americans with coverage, and replace it with nothing.”
According to Forbes, Health and Human Services (HSS) nominee Price’s “Empowering Patients First Act” would replace the Affordable Care act, “with a 401(k)-like plan where you’d be exposed to the ravages of the private insurance market and be given tax credits based on your age.” (source: Forbes)
Many believe that Price’s proposed reforms could have a major negative impact on Medicare. Not necessarily in the short-term, but in the long term, his reforms could be used to dismantle our current Medicare system and instead, hand out lump sums or “vouchers” to retirees to be used to buy private insurance policies. Would this be helpful or hurtful to our aging Baby Boomers? That is yet to be seen.
I have to wonder if the vouchers would be enough to cover a year’s worth of medical expenses? According to many healthcare and medical experts, “probably not, if (the senior) has a range of expensive or chronic medical issues, as many older people do.” (source Wired)
The Bottom Line on Trump on Medicare. In the short term, it appears there will be no major changes to Medicare. But we need to keep our eye on the details of HSS nominee Price’s “Empowering Patients First Act” and how that could be applied to the future of Medicare. Many believe a voucher system could have severe negative impact on seniors and healthcare.
Trump on Estate Taxes (AKA: “The Death Tax”)
Much hoopla has been made over the Estate Tax, renamed by Republicans in the 1990s as the “Death Tax”. Politicians have used it as a political tool to win over constituents for decades. Democrats want to keep the tax, as a safeguard against the “accumulation of dynastic wealth” (Source: Time) or to prevent the rich from getting richer off the backs of average American and Republicans have tried (in vain) to repeal the so-called “death tax” claiming it penalizes success.
According to the IRS (IRS.gov) the Estate Tax is, “the right to transfer property after your death and it consists of an accounting of everything in your estate” and through a long process of determining what gets included and excluded from your estate (deductions), a value is put on your estate to determine your Gross Estate, and a tax assessed. (To read the full tax law visit the IRS website here). Some say this is an unfair “death tax” that penalizes upwardly mobile Americans wo want to leave a legacy to their children.
Let’s look at the facts about the so-called “Death Tax” (Source: Time Magazine):
- The current Estate Tax affects less than one half of 1% of American estates
- $10.9 million is the value of a married couple’s estate EXEMPT from the Estate Tax. That means anything over $10.9 million is subject to 40% tax ($5.45 million for singles).
- .4% (yes, 4/10 of one percent) of decedents’ estates are subject to the estate tax.
- $269 billion is raised for the treasury from this tax.
- Fewer than 5000 estates would benefit each year from its full repeal
Donald Trump and Speaker Ryan have vowed to repeal the Estate Tax n 2017. What does that mean for you and me? If the value of your estate is less than $10.9 million it means absolutely nothing to your personal estate plan. If your estate is worth more, it means your decedents will get all your estate – tax free. It also means our treasury will lose $269 Billion dollars. That revenue must be made up somewhere; either through cuts in services or higher taxes on the rest of us.
The Bottom Line on Trump and Estate Tax:
One possible scenario that could be a part of estate tax repeal is the repeal of the step-up in cost basis that currently occurs on death. Today, if you inherit appreciated assets such as stock or real property, you get a new cost basis as of the date of death. This allows heirs to sell these assets with little or no capitals gains tax. In community property states, the surviving spouse can enjoy a 100% stepped up basis if their assets are titled correctly (such as in a living trust that designates the assets as community property. Joint tenancy does not work for this). A loss of the stepped-up basis will force heirs to trace back the original cost basis of assets they inherit, and pay the capital gains tax on sale. The temporary estate tax repeal under the Bush administration included both a repeal of the stepped-up basis, and the new provision that capital gains tax will also be triggered by death.
The bottom line is that if the estate tax is replaced by a due on death capital gains tax, the majority of estates may become taxable! Careful attention to any new estate tax laws, and careful planning after the laws have gone into effect, will be critical!
The future is as uncertain as ever. How the new administration will affect our lives is yet to be seen. Use the information above to learn and keep track of laws that may affect you.